WHY the Gap Between Analysis and Action?

When I started getting interested in technical analysis, there was no internet, no Amazon, only bookstores. The investing section was usually quite small and the technical analysis sub-section only had a few books. Fast forward today and things have changed considerably. Fewer bookstores and most available online. Amazon seems to dominate. Technical analysis books are everywhere; you have your giant bible-like tomes from Kirkpatrick, Pring, and Murphy. There are hundreds dedicated to a single discipline and there are still many in the “get rich quick” category.

Software, both desktop and web-based, for technical analysis has also proliferated greatly. While I was actually in that business in the 1980s until 1994, I honestly think that it has probably hurt the overall level of knowledge in technical analysis. Let me explain. When someone dedicates the time and money to create a technical analysis package/website, they would be foolish to not include every conceivable tool and technique. Most are not trying to sell you a specific discipline, they want to sell you a complete analysis package. Click a button and see Stochastics on a chart, click another button and up pops Wilder’s RSI. How great is that? They are somewhat like Microsoft Excel. I doubt anyone uses all of Excel’s features, but I think many try to use all of the features in a technical analysis software package. Why? They have yet to find where they are going. When you use Excel you probably have a goal of analysis in mind and know where you are headed. You might use the help feature to figure out how to do a certain calculation. Rarely would you just browse through Excel trying features. Technical analysis software/websites are different because most are learning and experimenting. This can hurt the overall understanding of technical analysis if one does not read other sources.

There will always be those who are looking for the quick road to success; these are the ones who usually only occupy the “technical analysis” space for a few years. If you want to stick around, you have to read and study; you must strive to understand the purpose and process behind each indicator, measure, chart, etc. I went to the Dallas Public Library 2-3 times a month to devour the technical analysis books. I wrote an article some time back called The Many Faces of Technical Analysts, because at one time or another in the past 45 years I have been each of them. Back to the software/websites. If you are using a generalized technical analysis package/website and you have never read a book, or only read a few on the subject, you are cheating yourself. I just read what I typed and I hope you don’t think I’m trying to sell books. I’m trying to sell you on learning the details of technical analysis instead of a superficial approach to it.

In a previous article I was critical of all the Fibonacci stuff that is being used by many. My goal was simply to let you know how insignificant it is once you understand the details. I’ve rambled on enough. You don’t think you could become a pilot by walking up to an airplane and jumping in the cockpit do you? How about teaching a class on Calculus? Of course not! Then why would some think they can be technical analysts by clicking on buttons in a software package/website. You cannot. These are the ones, and there are many, who only play with technical analysis. I imagine they don’t even have a brokerage account or if they do it is in money market funds. And the real reason they don’t trade is because they cannot pull the trigger. Yes, no matter how much you study, and how much you think you know about the subject, to make it work you have to make a trade. The real analysis is at the hard right-hand edge of the chart. They lack the confidence in their analysis to pull the trigger and act upon what they see. And that is the gap between analysis and action and with some many, it is a big gap.

StockCharts.com has a wonderful source for technical analysis. I should actually add it to the list of all-inclusive tomes on the subject. It is called ChartSchool and should be your first destination for information or just to browse. I don’t think we browsed in the 1970s, but maybe I have just forgotten.